Sales of Big S.U.V.s Pulling the Weight at General Motors

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“I didn’t buy the vehicle for the gas mileage,” Mike Quinto said of his new Chevrolet Suburban. “I bought it for everything it can do for me and my family.”CreditCreditMax Cooper for The New York Times

By Aaron M. Kessler

July 24, 2014

When the redesigned 2015 Chevrolet Suburban started coming off the assembly line this year, Mike Quinto made sure he was one of the first to buy one, ordering it, sight unseen, two months ahead of time.

Mr. Quinto, a technology consultant from Blowing Rock, N.C., is well aware that the fuel economy of his four-wheel-drive Suburban, a large sport utility vehicle, is low, officially rated at a combined 18 miles a gallon. But it is a trade-off he is willing to make for something that can handle his work travel and weekends in the mountains with his children.

“I didn’t buy the vehicle for the gas mileage,” he said. “I bought it for everything it can do for me and my family.”

Tens of thousands of buyers have similarly flocked to buy G.M.’s largest S.U.V.s — and buoyed the company’s bottom line just when it needs it most. Mired in a recall scandal over defective ignitions that has now, along with other safety-related charges, cost the automaker $3.8 billion, G.M. has been hammered on its income statement. On Thursday, the company said its earnings in the second quarter dropped 85 percent from a year ago.

But G.M. would be in worse shape financially without the surging sales of its large sport utility vehicles, which many once wrote off as artifacts of prerecession excess.

G.M. emerged from bankruptcy in 2009 with $49.5 billion in taxpayer money and a promise to diversify its lineup of vehicles. Gone would be the days of relying on the huge — and hugely profitable — sport utility vehicles that sold so well when the economy was booming. Instead, the new G.M., facing the collapsing sales of its largest vehicles, would build fuel-efficient, smaller cars to compete with foreign automakers that had gobbled up market share.

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Big sport utility vehicles can increase G.M.’s bottom line in a way that smaller vehicles cannot.CreditIllustration by Sam Manchester/The New York Times

And G.M. did take action toward that promise, introducing a host of new gas-sipping cars like the Chevrolet Cruze and the subcompact Chevrolet Spark. It even shuttered its assembly plant in Janesville, Wis., one of two that built the Suburban and G.M.’s other large sport utility vehicles, the GMC Yukon, Chevrolet Tahoe and Cadillac Escalade.

But as G.M. finds itself embroiled in an endless wave of recalls that now stands at around 29 million vehicles worldwide, the company has, by design or not, embraced its old playbook of marketing cavernous S.U.V.s — a segment it dominates even more today than in previous years. While competitors like Ford and Nissan have largely shifted resources away from such large vehicles, G.M. has stayed with them, and it now commands more than 70 percent of the market.

“I don’t think S.U.V.s will ever get back to their heyday, but G.M. absolutely owns the big S.U.V. space, and right now they’re relying on that,” said Tim Fleming, an analyst for Kelley Blue Book, the auto research firm.

That translates to big profits. With prices that can approach $65,000 for a full-feature Suburban, and even more for a Cadillac Escalade, big sport utility vehicles can increase G.M.’s bottom line in a way that smaller vehicles cannot.

While G.M. would not provide profit margins, analysts estimate that the company has to sell five small cars like the Cruze to equal the profit of just one Suburban. G.M.’s largest S.U.V.s reach profits of up to $10,000 a vehicle, said Jesse Toprak, an analyst with Cars.com. By contrast, its smaller cars make about $1,500 to $2,000. Altogether, the large S.U.V.s have added about $1 billion to G.M.’s bottom line this year.

What’s more, G.M. has not had to pile on incentives like rebates and bottom-rate financing to move its big S.U.V.s — in fact, the automaker reduced them once again in June. According to data from Kelley Blue Book, incentives on the Tahoe and Suburban in June were barely half of what they were a year ago, with Yukon incentives down nearly $1,000 to $2,500.

And sales are booming. G.M. has sold nearly 46,000 Chevrolet Tahoes this year through June, up 12 percent from 2013. It has sold nearly 24,000 Suburbans (a 9 percent rise); about 19,000 GMC Yukons (up 54 percent); and 7,000 Cadillac Escalades (up 18 percent). In June alone, sales of the four vehicles rose 86 percent from a year earlier.

“They needed this market to turn for S.U.V.s, and it’s turned,” said Jessica Caldwell, a senior analyst with auto research firm Edmunds.com.

Fueling this new boom for bigger rides is an improved economy. But Ms. Caldwell said social norms were also starting to change: Big sport utility vehicles do not have the stigma they had in the depths of the recession.

“Now it’s O.K. again to buy an S.U.V., where for a while it was somewhat iffy,” she said. “People who’d downsized probably weren’t fully satisfied with what they had, so they’re going back to the big ones they like.”

A G.M. spokesman, James Cain, said while the market for big S.U.V.s might not be what it once was, it’s proving to be a “very successful business” for the company. “Every global automaker has areas they specialize in,” he said. “This is one that we know well, and which we continue to dedicate resources to.”

To keep up with demand, the Arlington, Tex., plant that makes the Suburban is running 24 hours a day, in three shifts, along with extra work on weekends, said Mark Clawson, G.M.’s Tahoe and Suburban marketing manager. He said there was something about the biggest sport utilities that creates loyal customers.

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Tens of thousands of buyers have similarly flocked to buy G.M.’s largest S.U.V.s — and buoyed the company’s bottom line just when it needs it most.CreditFabrizio Costantini for The New York Times

“Once they get into a vehicle this size, and realize how accommodating it is to their needs, they have a hard time giving up that space,” Mr. Clawson said.

Mr. Quinto, the Suburban buyer from North Carolina, said he test-drove other large vehicles, but even the accouterments of more luxury brands did not hold up. He had been satisfied with his previous vehicle, also a Suburban, which he put 225,000 miles on.

He had his sights set on an Audi Q7 — that company’s larger offering. But there is large, and there is Suburban large. One day, while driving by the Audi dealership with his two children and some of their friends, Mr. Quinto made an impromptu stop.

“I said, ‘O.K., everyone get out of this, and get into that,’ ” he said. “It just didn’t work.” The Suburban, stretching 18 feet 6 inches and weighing nearly three tons, did.

Howard Sucher, of Parkland, Fla., knows the feeling. Mr. Sucher has a family of six, including a newborn, and he said even his old Cadillac Escalade was too small. When the new 2015 Suburban became available, he, too, bought it without ever taking a test drive — ordering it early from a dealer in Miami.

“I felt I had no choice,” Mr. Sucher said. “There really is no other large vehicle for a family this big that needs a stroller in the trunk.”

Already he has been putting it to use. Last week, his family piled in for a 17-hour trip to Louisiana. As for fuel economy, Mr. Sucher said, it “wasn’t really a concern.”

“It actually gets decent mileage on the highway, so that’s a bonus,” he added. “But gas mileage wasn’t a factor in my decision.”